Offshore Wind

The latest, all-too-predictable back-and-forth in Washington over the failure to extend the energy tax credit will not only affect further U.S. expansion of land-based wind farms. Count on even greater havoc at play in the direction, financing and development of the next generation of wind-driven energy—i.e., offshore coastal installations. That's primarily—but certainly not exclusively—because construction cost of offshore wind farms typically exceeds that of the landed version. And so for investors and OEMs, knowing with certainty when and from where capital for such ambitious projects will come is anybody's guess. And just to add some urgency to the picture, consider as well that our European cousins, as was the case with land-based turbines, are already well ahead of us in offshore wind installations—there's a shocker—and the outlook here becomes rather dismal.

This is a big deal because offshore installations—available as they are to greater and more extended wind forces—can potentially generate more clean, wind-driven energy than do onshore units. On average, offshore wind blows at higher speeds than onshore winds, and so sea-based turbines produce more electricity. According to the European Wind Energy Association, offshore parks generate more power than those on land because wind blows 40 percent more often at sea. And given that coastlines since the beginning of time tend to attract large population centers, this arguably low-hanging energy source is significant. And countries around the globe are buying in—some more than others.

Or as a climatewire.com piece from September 2011 has it, "Whipped by winds exceeding 90 mph and battered by 15-foot waves, hundreds of wind turbines produce electricity off the coast of the North Sea and send it onshore to power homes and businesses in the United Kingdom, Germany and Denmark. Thousands more will be erected in the next 15 years, and bigger will be better as far as turbine makers are concerned."

But not here, perhaps.

One of many examples often cited in support of that pessimism is the Bluewater wind farm off Delaware's coast. According to a December aolenergy.com article by Jon Hurdle, "The proposed wind project received a near-fatal blow this week when developer NRG Bluewater Wind said it would withdraw from a power purchase agreement with local utility Delmarva Power that would have given the wind farm a market for 200 MW of its output. NRG said it had been looking for investors for the 150-turbine project but that none had come forward because the risk was too great in the absence of long-term federal tax credits and loan guarantees."

The same article further states that "NRG blamed Congressional decisions to eliminate federal funding for an offshore wind loan-guarantee program and to terminate investment and production tax credits when they expire at the end of 2012. Without the federal support, private investors won't back the significant sums needed to build offshore wind farms, said Peter Mandelstam, president of NRG Bluewater Wind."

"This is a reflection of inconsistent federal tax policy," Mandelstam is quoted as saying in an interview. "Business people make decisions based on the rules as they find them." Other issues exist over offshore wind as well—with power companies, for example. It is proving difficult for OEMs to strike deals with utilities over sufficient energy purchase quantity and rate levels for offshore wind power. But if economic market history is any judge, things like that should eventually sort themselves out.

So the tax credit expired and spring is rapidly approaching. Now what?

As things stand now, analysts say, the U.S. offshore wind industry is not in the same league with Europe—with its existing 3,300 MW capacity and 2,900 MW already under construction—and will remain that way unless it gets some skin in the game and supports the industry as aggressively as do other countries. Aside from the Bluewater project, the most significant project is the Cape Wind initiative off Massachusetts, pending cooperation with local power provider National Grid.

Here is some perspective found in a January online piece from The Center for American Progress by Richard Caperton, Michael Conathan and Jackie Weidman:

"More than two decades ago, Denmark built the world's first offshore wind farm near Copenhagen. Since then offshore wind has been added to the energy portfolio of nine other countries in Europe and Asia. The East Coast of the United States, from the Mid-Atlantic region north through New England, possesses some of the world's most favorable environmental conditions to tap into this massive renewable energy resource. And even though public opinion throughout the region strongly supports such development, we have yet to begin construction on even a single turbine.

"With a stronger commitment from Congress, Atlantic coastal states could advance projects that simultaneously reduce greenhouse gas emissions, lower our dependence on foreign oil and create jobs and industrial innovation from Maine to the Carolinas."

Or this, from the same report:

"Meanwhile, developers in the United Kingdom, Denmark, Germany, Spain, France, Norway, China, South Korea, and other countries are proving that offshore wind is a viable economic model. They have permitted more than 40,000 MW of offshore wind energy capacity. The United States has only issued permits for 488 MW."

But the report gets even worse:

"Not only does this (inaction) delay reduction in greenhouse gas emissions and our transition to renewable energy sources; it also prevents American innovators from taking advantage of the design, manufacturing and construction jobs that go along with it. In Europe, developers expect to create 169,000 jobs by 2020 and 300,000 by 2030."

Pretty heady stuff; yet here in the United States, gridlock permeates Congress. But hey—it's an election year, after all.

If we were to get serious about offshore wind, not just U.S. turbine equipment manufacturers but also shipbuilders who construct the specialized ships needed to install offshore wind turbines and foundations would thrive. And harbors near wind farms would have to be upgraded to accommodate the large ships needed to install them, benefitting dredging companies in those states.

Meanwhile, President Obama has proposed tax reform including a call for a permanent wind energy production tax credit. Wording in the plan points out what most in the industry already know—that "temporary production tax credits have created an uncertain investment climate, undermined the effectiveness of our tax expenditures and hindered the development of a clean energy sector in the United States."

But the prospects for passing that legislation anytime soon are more than bleak.

So enough for now of the business and political—let's get technical.

"The opportunities in the wind industry are enormous," said Finn Strøm Madsen, president of Vestas Technology R&D, recently. "It's a technology-driven business. From a research and development perspective, it is a very interesting area. Vestas is spending 5.5 percent of its revenue on research and development, which is comparable with Airbus or Boeing."

Indeed, the 7 MW Vestas V164 turbine has double the capacity of a 3 MW unit, the current industry standard.

"This is a dramatic technology development because the rotor is so much bigger than anything on the market today," Madsen said. "The control systems and the software are totally new, and the control mechanisms are very sophisticated and advanced compared with existing wind turbines. The blade shape is different and much more efficient. Overall, it drives down the cost of energy by about 40 percent, which is a very important parameter for our customers."

A major technology battle is already being waged over the efficacy of the conventional, geared turbine versus the direct drive version. For now, especially in the U.S., most wind turbines have generators connected to a gearbox. But direct drive offshore turbines are another animal. And because the offshore wind turbines cost considerably more to install and service, reliability becomes even more critical. For example, offshore units require those special ships mentioned earlier that anchor turbine foundations and build the towers are also needed for repairs. It is not only expensive to send technicians to repair turbines at sea, but also potentially dangerous, especially in bad weather. So the question becomes which of the two offers the best reliability at sea—gear drive or direct drive. That's a question still in dispute—overseas at least.